Use the Information Below to Answer the Following Question(s)

question 16

Multiple Choice

Use the information below to answer the following question(s) .Following a strategy of product differentiation, Barry Company makes an XX 300.Barry Company presents the following data for the years 1 and 2. Barry Company produces no defective units but it wants to reduce direct materials usage per unit of XX 300 in year 2.Manufacturing conversion costs in each year depend on production capacity defined in terms of XX 300 units that can be produced.Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support.Neither conversion costs or customer-service costs are affected by changes in actual volume.Barry Company has 23 customers in year 1 and 25 customers in year 2.The industry market size for high-end appliances increased 5% from year 1 to year 2.
-What is the Barry Company's change in operating income from year 1 to year 2?

• A)$147,600 favourable
• B)$143,520 favourable
• C)$156,120 favourable
• D)$156,120 unfavourable
• E)$242,000 favourable

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Definitions:

Laffer Curve

A theoretical representation of the relationship between tax rates and government revenue, suggesting there is an optimal tax rate that maximizes revenue.

Tax Revenue

The financial earnings that governments obtain through taxation.

Price Ceiling

A legally imposed limit on the price that can be charged for a good or service.

Shortage

A situation in which the demand for a product or service exceeds its supply in a market.